Since April 2021, UK income tax thresholds have been frozen — and they remain frozen through April 2028. By tax year 2026-27, the freeze has been in place for five years, costing typical higher-rate earners thousands per year in real terms compared to a CPI-indexed counterfactual. This article explains how fiscal drag works, who is most affected in 2026-27, and the legal levers to reduce its impact.
What Are the Frozen Thresholds?
For 2026-27, the income tax thresholds in England, Wales, and Northern Ireland are:
| Threshold | Amount | Frozen since | Freeze ends |
|---|---|---|---|
| Personal allowance | £12,570 | 2021-22 | April 2028 |
| Basic rate band upper limit | £50,270 | 2021-22 | April 2028 |
| Additional rate threshold | £125,140 | 2023-24 | April 2028 |
| £100k personal allowance taper start | £100,000 | unfrozen — fixed | indefinite |
| HICBC threshold (lower) | £60,000 | 2024-25 onwards | indefinite |
In Scotland, income tax rates and bands are set by the Scottish Parliament and differ from the rest of the UK. Scotland’s higher-rate, advanced and top thresholds are also frozen for 2026-27, with only the starter and basic-rate thresholds inflation-uplifted in the January 2026 Scottish Budget.
The freeze is scheduled to last until April 2028 — meaning thresholds will have been static for seven years.
How Fiscal Drag Works
Imagine the personal allowance had risen in line with CPI each year since 2021. Using ONS CPIH inflation through 2024 and modest 2.5% projections through 2026, the personal allowance would be roughly £15,750 by 2026-27 rather than £12,570. The £50,270 higher-rate threshold would be around £63,000 if it had tracked the same inflation path.
Instead, both remain at their April 2021 levels. A worker who earned £45,000 in 2021 and received pay rises tracking inflation now earns around £56,000 — comfortably across the higher rate band despite being no wealthier in real terms.
This phenomenon — people moving into higher tax bands purely due to wage growth rather than genuine increases in real income — is called fiscal drag or sometimes the “stealth tax”.
A Worked Example
Consider someone who earned £48,000 in 2021-22 and has had annual pay rises of around 5% to keep pace with inflation. By 2026-27 their salary has reached £61,261:
| Tax Year | Salary | Over £50,270 HRT by | Extra 40% tax (vs basic rate alternative) |
|---|---|---|---|
| 2021-22 | £48,000 | (under threshold) | £0 |
| 2022-23 | £50,400 | £130 | £26 |
| 2023-24 | £52,920 | £2,650 | £530 |
| 2024-25 | £55,566 | £5,296 | £1,059 |
| 2025-26 | £58,344 | £8,074 | £1,615 |
| 2026-27 | £61,261 | £10,991 | £2,198 |
By 2026-27 this person is paying approximately £2,198 more in income tax than the basic-rate alternative — not because of any real pay increase, but because wages moved while thresholds did not. Cumulative extra over the five-year freeze: ~£5,454.
If the personal allowance and higher-rate threshold had been CPI-indexed since 2021, both would have moved alongside the user’s salary, and most of this extra tax would not exist. The freeze is scheduled to continue through April 2028, so the cumulative drag for this profile will keep growing each year.
Who Is Most Affected?
Workers Approaching the Higher Rate Threshold
Anyone with earnings between roughly £45,000 and £60,000 is most likely to have been dragged across the 40% threshold during the freeze period. In 2021, only workers earning above £50,270 paid higher rate tax. By 2028, millions more will be in this position.
Higher Earners Approaching the Personal Allowance Taper
For those earning between £100,000 and £125,140, there is an additional sting. The personal allowance is gradually withdrawn at a rate of £1 for every £2 earned above £100,000. This creates an effective 60% marginal tax rate on income between £100,000 and £125,140. The upper limit of this “60% trap” was increased to £125,140 in 2023-24 and has remained there.
Pensioners on the State Pension
The full new state pension in 2025-26 was around £11,973 per year (£230.25/week × 52). With triple-lock uprating the 2026-27 figure is expected to push close to £12,500 — within £100 of the frozen £12,570 personal allowance. If the state pension continues to rise under the triple lock while the personal allowance remains frozen, pensioners with any other income (or in some cases the state pension alone) will start paying income tax for the first time. The 2026-27 state pension figure should be confirmed against gov.uk State Pension rates once the April uprating is published.
Scottish Taxpayers
While this article focuses on UK-wide thresholds, Scottish taxpayers have different rates and bands set by Holyrood. Scotland has its own starter rate, basic rate, intermediate rate, and higher rate thresholds, some of which have also been frozen or adjusted differently.
The Scale of the Freeze
According to estimates from bodies like the Office for Budget Responsibility and the Resolution Foundation, the threshold freeze is one of the largest tax increases in recent UK history. Millions of taxpayers who were basic rate payers in 2021 have been pulled into the higher rate band, and additional rate taxpayer numbers have grown substantially.
By the time the freeze ends in 2028, the government will have collected tens of billions of pounds in additional revenue that would not have arisen if thresholds had been indexed to inflation.
What Can You Do About It?
The threshold freeze is a structural change to the tax system, but there are legal strategies to reduce its impact:
1. Pension Contributions
Making pension contributions reduces your adjusted net income. A worker on £55,000 who contributes £4,730 to a pension will bring their taxable income below the £50,270 higher rate threshold, saving up to 40% tax relief on those contributions. Both personal pension contributions and salary sacrifice arrangements work for this purpose.
2. ISA Contributions
While ISA contributions don’t reduce your taxable income, they shelter future income and gains from tax. If you’re investing or saving, using your £20,000 ISA allowance first means the returns won’t compound your tax problem in future years.
3. Salary Sacrifice Arrangements
Beyond pensions, salary sacrifice can include childcare vouchers (through legacy schemes) and cycle-to-work arrangements. Each reduces your gross pay and therefore your National Insurance and income tax liabilities.
4. Gift Aid Charitable Donations
If you make donations to charity through Gift Aid, higher and additional rate taxpayers can claim the difference between the basic rate and their marginal rate as a tax refund. This effectively extends your basic rate band.
5. Transfer Income-Producing Assets
Married couples and civil partners can transfer income-producing assets (such as savings accounts or investment portfolios) to the lower-earning partner, making use of their personal allowance and lower rate bands.
6. Check Your Tax Code
With fiscal drag, it is increasingly important to make sure your PAYE tax code is correct. Errors in your tax code can mean you’re overtaxed or underpaid — and an unexpected tax bill at year end is no fun. Check your code on your payslip or via your HMRC Personal Tax Account.
Resources
- PAYE Optimization Hub — see fiscal drag in context with sal-sac, savings tax, and tax code in one flow
- £100k Tax Trap Calculator — for higher earners squeezed by the £100,000–£125,140 personal-allowance taper (62% E&W / 69.5% Scotland)
- Salary Sacrifice Calculator — the most effective single tool to reduce taxable income
- Inflation & Fiscal Drag Calculator — interactive projection over arbitrary horizons
- Income Tax Calculator — see exactly how much you’re paying under the current frozen thresholds
The threshold freeze is structural and won’t lift until April 2028. The levers above are the legal ways to claw back what fiscal drag is taking.